Video

Dovishness in the minutes of the Fed's July policy meeting softened the US dollar, and gold is climbing back towards a test of key resistance partly on 'stranger and stranger' developments in Washington.

Above the Noise: One Facebook number to watch - 23,263,320,127

The US stock markets are closed for the week and the press and public are left to ruminate the long-waited IPO of Facebook. I am no exception; I watched it with fascination. The number that has really struck me is 23,263,320,127 - but I will get back to that shortly. To all the skeptics about the Facebook IPO and their claim that it signals everything that is wrong with our cilivization today, I want to highlight why it is about capitalism, optimism, entrepreneurship, value creation and a huge technological achievement.

Historical trading volume on first trading day

The Facebook IPO had it all. High expectations like New Year's Eve, the largest tech IPO in history, drama in setting the opening price due massive opening retail bids and the battle by the underwriters to keep the share price above the USD 38 per share IPO price (see chart below). All fascinating, but one thing stands out. During the trading day investors traded Facebook shares worth USD 23,263,320,127! This is a crazy number. To set it into perspective investors traded Apple shares worth USD 13,976,425,964 Friday on what was actually one of the busier trading days for Apple. It tells you the depth of trading in Facebook shares. From a technical perspective it was tough job for NASDAQ OMX and it caused some problems. Nevertheless, in the end they managed it and showed why the US stock markets are the only ones that can handle such huge capital market events.

Source: Bloomberg L.P.

From a more philosophical point of view, the Facebook IPO connects a lot of retail investors with capital markets, which is something good as capitalism is under attack from politicians and the ordinary man. The idea that our capital pool can be funneled like blood through the veins of capital markets into organisms like Facebook is fascinating. From a historical perspective it is through these large IPOs that businesses get the capital needed to embark into bold and risky expansions to the benefit of all.

Silicon Valley's ecosystem will prosper from Facebook's IPO

A great thing that will come out of this IPO is the liquidity event for many earlier investors that are now getting paid for their earlier deployment of risk capital. All this capital returning to venture capital and seed investors, current and former employees, will likely flow back into Silicon Valley and new risky ventures. This is how the Silicon Valley ecosystem works.

In addition, I heard from some US tech commentators yestday was that Facebook is now the platform or facilitator for more than 9 million businesses around the world. Many new companies don't bother with their own websites any more. They have a Facebook company site. It is free, it scales and it gives access to 900 million people if you can leverage them. Never in history has it taken less capital to get started with a new business venture where you can reach a global market within a few months if you are bold enough. If that is not an achievement for the world, I do not know what is.

Let me finally share some pretty awesome information about Silicon Valley (see below) that highlights why the Facebook IPO has to be seen in a broader picture than the (presumably) overvaluation and hype. The IPO is connected to all the good things coming out of Silicon Valley:

Startup Throughput: The Silicon Valley startup ecosystem is 3x bigger than New York City, 4.5x bigger than London, 12.5x bigger than Berlin, and 38x bigger than Boulder.Startup Success Rate: The Silicon Valley ecosystem has proportionally 22% more companies that make it to the scale stage than in NYC and 54% more than in London.Availability of Capital: On average Silicon Valley startups raise 2-3x more money in the first 3 stages of development: Discovery, Validation, and Efficiency. But in the scale stage, compared to Silicon Valley, New York City startups raise 27% more money and London startups raise 30% more money.Job Creation: In the Efficiency and Scale stages, Silicon Valley startups create 11% more jobs than NYC startups and 38% more jobs than London startups.

Facebook will inspire other entreprenuers

Another thing we can hope to see from this IPO is more risk taking; because we need it badly. Hopefully young people around the world will look at this IPO and say "Yes! if Zuckerberg can do it, we can do it!" and go into computer science, mathematics, physics, cryptography and electrical engineering, eventually to start a business. To some extent we are living in times that remind us of the 1930s (without the starvation) with mass mistrust in the economic and political system. We need hope and I am telling you something I read from the leading scientist in robotics technology. It is not politicians, but entrepreneurs who are willing to risk their marriage and entire savings to breathe life into their ideas. We should celebrate Facebook, regardless of the current rhetoric.

We desperately need more entrepreneurs that see things differently, as the August 3 1997 Apple commercial says. Watch the short commercial if you have not seen it before.

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Tradingfloor.com permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Tradingfloor.com and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Tradingfloor.com is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Tradingfloor.com or as a result of the use of the Tradingfloor.com. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through Tradingfloor.com your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. Tradingfloor.com does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer